Flipping houses is a quick way to make money as a real estate investor. However, the investor needs a planned real estate investment strategy to flip houses successfully. It even gets harder to do so if the country is going through a recession at the time.
Before effectively flipping homes during a recession, here are five things from Hard Money Bankers that investors should be aware of.
It Might Take Longer to Get Buyers
One of the many implications of the recession is that everyone in the country is cutting back on expenses. There will be few individuals searching for homes at this time unless a significant need for real estate materializes for some reason.
Investors have two options. Either they wait through the downturn and refrain from investing money in flipping homes or continue the process while patiently waiting for a buyer to materialize.
For the latter, this may take some time. However, it has the added advantage that investors can purchase the property they wish to flip at a lower cost from people feeling the bite of the recession.
Don’t Flip Houses That Need Too Many Structural Changes
An essential part of flipping a house is the work done on it. It could either be structural changes or changes that are based on aesthetics.
While both could cost a lot, structural changes, such as excessive plumbing, roofing, or electrical work, might incur the investor more expenses than needed.
It will be easier to sell the house if the amount of money from expenses added to the selling price is not on the high side.
Choose the Right Neighborhood
The neighborhood where the house is located will play a huge role in determining whether a “flip” strategy will work.
No matter how wonderfully the property was refurbished, there won’t be a lineup of prospective buyers if the neighborhood is in decline. Therefore, any money spent might ultimately prove to be a waste.
On the other hand, in a developing neighborhood, the land value of the property can be sufficient in and of itself to support a flip strategy.
Make Accurate Holding Cost Calculations
Flipping a house is not just about purchase price versus sales price from the get-go. The investor also needs to calculate the holding cost that will be incurred between the period the house was revamped and when it will be sold.
This includes lawn mowing bills, security bills, cleaning bills, and taxes. These ostensibly insignificant costs may see a substantial increase during a recession.
Therefore, the predicted return from selling the residence might be destroyed if the investor does not evaluate the holding expenses accurately. Understanding this is similar to anyone who wants to be successful as an entrepreneur but definitely applicable to flippers.
Choose Only Low-Interest Loan to Finance Your Projects
Loan interest rates will increase during the recession since banks are less inclined to give funds to borrowers. However, if the investor does thorough research, there is still a chance of discovering a financial institution with a lower interest rate.
Lower interest rates make it easier for the investor to make the loan’s monthly payments, especially if the recession makes it harder to sell the house after the necessary repairs have been paid for with the loan.
If you found these tips helpful, be sure to check out the Private Lenders’ Podcast from Jason and Chris at Hard Money Bankers here: https://podcasts.apple.com/us/podcast/private-lenders-podcast/id1476153070